Public Bill Committee

[Miss Anne Begg in the Chair]

Anne Begg: Before we begin line-by-line scrutiny of the Bill, I have a few preliminary announcements. As I said this morning, Members may remove their jackets if they so desire. Could they also ensure that pagers and mobiles are off, or at least turned to silent? I should also point out, yet again, that there is a money resolution in connection with Bill, copies of which are on the Table in front of us.

Clause 1

Sale of student loans

Bill Rammell: I beg to move amendment No. 1, in clause 1, page 2, line 4, at end insert—
‘(4A) Transfer arrangements shall have effect (and, in particular, a provision transferring rights or obligations is sufficient to effect the transfer).’.
I did not say this morning what a pleasure it is to be under your chairmanship, Miss Begg. I hope that all members of the Committee realise that this is a minor and technical amendment. The intention behind the Bill is to give the Secretary of State the legal power to transfer his rights in respect of income-contingent student loans. We have reconsidered the drafting of clause 1 and wish to remove any potential for it to be construed in the commercial sector in a way that differs from the policy intent behind the Bill. We want it be completely clear that the Bill will give effect to transfers in itself, rather than simply giving the Secretary of State the power to make sales under general legislation governing contracts.
Although the Bill as it stands is clear—that is certainly my reading, and it was the view previously, including on Second Reading—it is important that potential purchasers in the commercial sector should be in no doubt as to what it enables the Secretary of State to do. If they thought that there was any question over whether the transfer would have legal effect, they would probably reduce their valuation of the loan portfolio and any securities backed by it, which would clearly damage our prospects of getting good value for money. It is therefore appropriate to remove that uncertainty, however slight it might be, to ensure good value for money for the taxpayer. This technical amendment will put beyond doubt our intention, which is that the Bill, in itself, will enable sales of loans that will have legal effect. I hope that that is uncontroversial and I therefore commend the amendment to the Committee.

John Hayes: What an immense pleasure it is to serve under your illustrious chairmanship, Miss Begg.
The Minister has made a case for what is essentially a technical change. However, clause 1 permits the Secretary of State to sell to a purchaser his rights and obligations relating to student loans, and sensitivities were expressed on Second Reading and again during the scrutiny that we enjoyed this morning about the precise nature of that transfer of competence. In particular, many concerns have been raised about the impact on students past, future and present, and about commercial issues relating to the sale and possible subsequent resale.
I entirely accept the Minister’s assurances about the effect on students and that his intent is that they should see no difference. I accept that the process is meant to be transparent and that students should fully understand what is going on; indeed, they will be written to with an explanation of the process. I also accept that they will see no difference, because the circumstances will be identical; indeed, that has been made clear in the explanatory notes, and in the Minister’s comments on Second Reading and this morning.
However, there is the matter of Ministers’ judgment as to how they use these powers in practice. For example, there is nothing in the Bill to prevent different loan repayment arrangements, as long as those arrangements are made with the Secretary of State’s consent. The Minister dealt with that this morning and said that if a future Government took a different view about loans, it might be a matter of political imperative that the circumstances changed in respect of the treatment and condition of graduates. Had the Committee been considering these issues over a longer period, we might have tabled a probing amendment.

Anne Begg: Order. Perhaps I can help the hon. Gentleman. This is a debate on Government amendment No. 1. I suspect that his speech should be made during the debate on clause 1 stand part, which I will be calling.

John Hayes: I am grateful for that advice, Miss Begg, which I had anticipated. This is a short version of the very extensive summary that I shall be giving in the clause stand part debate, but I take your point that I need to address my remarks more specifically to the amendment.
Perhaps I can ask the Minister a simple question: will he tell us specifically what rights or obligations will be necessary? Will he confirm, once again, that the amendment will have no impact on the graduate population concerned? Perhaps in the clause stand part debate we can explore one or two of the wider aspects of clause 1, which, as I have said, have given rise to concerns here and elsewhere.

Bill Rammell: I am happy to give that assurance. The minor technical amendment that we are considering will have no material impact on graduates. It is being proposed simply to ensure that the position that we knew and believed to be the case is absolutely 100 per cent. clear so that there is no room for doubt. I hope, on that basis, that the amendment will be agreed by the Committee.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

John Hayes: Perhaps I can continue on stand part, as advised, where I left off a few moments ago, Miss Begg.
This matter is a question of how Ministers will use their power in the future. Of course, it is not appropriate for this Committee, or indeed this Parliament, to bind its successors in that regard. It might well be the case that a different Government came to a different view about student loans generally. Nevertheless, given that this is enabling legislation—we heard that, in essence, both on Second Reading and today—it is vital that we put on to the statute book something that will have relevance for the foreseeable future, because these matters might not be brought to a head immediately. Indeed, it might be some years before the loan book is sold.
My judgment about that matter, and in a sense my judgment about what lies at the heart of this aspect of the Bill—clauses 1 and 2 set out the essence of the Bill—leads me to ask how far we can reasonably protect the interests of students in perpetuity. How far can we limit the possible risks associated with the Bill without compromising the commercial attractiveness of the products? That paradox, if I can put it in those terms, underpinned much of our earlier discussion.
It is clear that Members are anxious that adequate protection is built into the Bill. Indeed, the Government moved the simple amendment that we dealt with a few moments ago for that reason. However, it is equally clear that the Government cannot build in such protection to a degree that makes the product unsaleable. The debate that we will have over the short hours—perhaps days, but certainly not weeks—of this Committee will focus on that issue.
I am anxious, as I am sure that the Minister is, to ensure that we have a robust piece of legislation that protects the interests of all concerned, including the public interest, while recognising that commerciality means that we cannot tie up the Bill so tightly that no one would want to buy the product. I think that that tension needs to be explored in some detail at an early stage of our consideration.
I would like to say one more thing at this juncture about the early clauses. There are real doubts about both the reason for the Bill and its consequent effects. Let me explain both those points. There seems to be an inherent confusion about the motive for the Bill. If the motive is to transfer risk, let us have a frank debate about why and how that will happen. If, on the other hand, the motive is to realise the value of assets, let us be frank about that, too. I am not sure that it can reasonably be argued that the motive is to do both, because if this is to be an attractive product, it must be advertised—as it has been by the Minister—as fairly safe and secure, and not a risky thing to purchase. If it is not a risky thing for a private investor to buy, it cannot be a terribly risky thing for the state to own.
If the motive is realising assets, let us be equally frank. I think that that is perfectly legitimate, and I have no ideological objection to that process, to use the Minister’s words. However, if that is the key objective, it must be underpinned by a secure and robust value for money framework, as the Minister has described. I am not yet convinced that we have an absolute assurance in these early clauses that value for money can be guaranteed, given the vagaries of Government policy and the changes that take place in ministerial offices—not that we are expecting the Minister to change; we want him here in perpetuity, at least until he is cast out at the election.

Robert Wilson: My hon. Friend makes a very interesting point about whether the Bill is about transferring risk or realising assets. Is he aware that in the Financial Times on 15 March, it was suggested that the Prime Minister and Chancellor were using the Bill to sell off public assets to keep the national debt below 40 per cent.?

John Hayes: I struggle, because I am an innocent in a world of cynics. I always tend to think the best of people. My hon. Friend is a businessman of some esteem and has the sort of sharp mind that those of us who are mere romantics can only envy. However, he might be right that there will come a time when, notwithstanding the assurances that we were given about value for money, somebody in government—it could be the Chancellor, or even the Prime Minister himself—will say, “Where can we raise a bit of dosh? I know, we have this enabling legislation. Let’s bang out the student loan book. We won’t get much of a price for it, but it’s better than nothing.”

Gordon Marsden: The hon. Gentleman is making his point with his customary alacrity and, certainly, some humour. If we are going into the fire sale area of ancient history, we could perhaps relate some rather difficult examples for his party. However, I will not stray down that course.
Surely it is perfectly possible to have a prudent approach on the overall conduct of Government finance. Is it reasonable that a priority for the Government’s time and effort is keeping something like student loans in the public sector when there is a perfectly good and robustly tested mechanism for transferring that risk to the private sector?

John Hayes: The hon. Gentleman is right. It is possible to square that circle. While these things are juxtaposed, I do not think that they are necessarily mutually exclusive. It is entirely possible for the Government to be prudent, yet to take decisions that enable the private sector to handle aspects of public policy. The Government acting as a facilitator is a well established model in Westminster and in local authorities, with which I know he is familiar.
For the protection of the public interest, and of Ministers, it seems important that the value-for-money framework should be well established and well understood and should attract a degree of non-partisan—one might say bipartisan or perhaps even tripartisan—support. I have a feeling, as a result of this morning’s scrutiny more than anything else, that we have to be even clearer about that to ensure that the marriage between prudence and appropriate lateral thinking on how the Government should handle their affairs, as described by the hon. Member for Blackpool, South, is made.
Will the Minister find a way to frame the protection of public interest and the value-for-money approach in a way that is entirely convincing? I suggested that it could be appended to the Bill—I do not take a definitive view on whether it should be on the face of the Bill or expressed in guidance. However, we need more than we have. The Minister is right: he mentioned it on Second Reading, it is in Hansard, and he will mention it again today. However, as Ministers and policies change, it would be useful to have something on value for money that is set in stone. That was certainly the sense of this morning’s discussions.
The other issue with the early clauses was explored in some detail, and we will no doubt return to it in our debate on clause 3. It is the question of how far the Secretary of State should intervene, for how long and in what circumstances. We talked at length about the Secretary of State’s power. This morning we began to test how permissive that power was. We questioned the Minister and tried to identify the circumstances in which the Secretary of State might feel that it was reasonable to intervene in a transaction subsequent to the initial sale. People were concerned about subsequent sales and how far the Secretary of State might intervene.
Clause 1 is about the principle of the first sale, and clause 2 goes into a little more detail along with clause 3. When the Minister sums up clause 1, will he speak a little about how the initial contract for the sale of the product might be sufficiently flexible as to have use beyond that first sale? In other words, would the Government sell the loan book in part, making it absolutely clear in the contract what the purchaser could and could not do subsequently? We know that there will be restrictions on what the purchaser can do in respect of those of the graduate population who are borrowers.
We are rather less clear about what the purchaser can do in commercial terms. Can they resell the loans? How can they resell them? In what circumstances? How will that resale affect the other considerations that we talked about—the collection of debt, the circumstances of the loans, and the robustness and reliability of the system? Should that not be dealt with up front, as we consider clause 1, and in the first contract? If I were buying the product, I would want to know on what terms I was doing so. If I were selling it, as a Government, I would want to know on what terms I was selling it and what might happen further down the line. It seems to me that the issue of resale will come back time and again as we consider the Bill. There are worries to consider.

Sarah Teather: I must confess that I am learning as I go along, and I suspect that I am not the only person in the Committee in that position. I understand from our sitting this morning that what happens to the bonds is a little irrelevant; the issue is what will happen to the special purpose vehicle and the extent to which that can be sold on. That is where we will need to focus our scrutiny later in Committee.

John Hayes: That is a fair point and, in a sense, the Minister’s reassurances are built around that vehicle. Again, I think that we assume a shared support for the principle behind the Bill, which was established in the debate on Second Reading. We are now talking about the mechanics of the sale. Parliament is at its best when we look at the details of something that we do not fundamentally disagree about, because we can get rid of some of the partisan debate and move on to serious scrutiny.
Bluntly, the problem is that, typically, one would expect that when a large debt is sold or purchased it would be broken into parts and resold. That frequently happens with the sale of debts. The Minister feels that that will not happen in this case. Indeed, he painted a picture of the special purpose vehicle for the sale that almost prohibited that eventuality—it did not prohibit it legally, but made it less attractive, one might say. In those circumstances, it might well be less attractive to buy the debt. If a potential purchaser is unable to resell it, that will affect both their likelihood to buy it and the price that they are prepared to pay. That is what I meant about striking a balance between protection and commercial viability. I want the Minister to be absolutely clear about it. He has obviously taken advice on the matter.
It is clear that the vehicle that he has described is designed to minimise risk for the public interest and for the graduate population, but how does the Minister expect that to interact with commercial viability when it is marketed? Will it be marketed as something that is difficult to resell, or that cannot be resold, or will it be marketed in an altogether more permissive way? I began to get a picture of that this morning, but I have yet to be fully convinced about how it might work out in practice.
My final point on the clause is a reprise of the question of the Secretary of State’s capacity to intervene in those kinds of commercial matters. There is no question that the Secretary of State is given powers by the clause; the word “may” rather than “will” is used a lot, as we will debate later. Notwithstanding that, it is not clear how far those powers are designed to intervene in commercial decisions. Are the powers designed solely to prevent anything untoward from happening as it is perfectly proper that they should be? Or are they powers that are likely to be exercised, that the Government expect to be exercised, and that will be exercised if the Government are unhappy about some of the commercial circumstances? For example, the book might be sold in parts, in the way that I described—notwithstanding the hon. Lady’s caveat, which I appreciate—and there may be concerns about to whom it was being sold. Would the book disappear abroad? Would we have any concerns if it did? We might not, but let us at least have that debate. I would like it to be clear in this and subsequent parts of the Bill to what extent the Secretary of State is likely to intervene in some of the commercial questions, rather than merely intervening to protect the interests of graduates, important though they are.

Sarah Teather: I welcome you to the Chair, Miss Begg.
There are a number of questions on which I would appreciate clarification. First, I will pick up on the hon. Gentleman’s point about the purpose of the clause. It would be very helpful if the Minister would lay out, either now or at some stage during the Committee, which risks are being transferred and which the Government are taking in a public and transparent way for the organisation that is buying it.
For example, this morning we discussed that the Government are continuing to take the risk of underwriting the debt if a graduate were to die, go bankrupt, or fail to pay off their loan before the age of 60. Presumably, that risk is accounted for in the sale, so the purchaser would be aware that the Government were continuing to take it. I presume that the Government have analysed exactly which risks they are transferring, and it would be helpful to understand what those are. Do the Government intend to hold a share in the special purpose vehicle or will it be sold on in its entirety? Will they continue to have any interest in it?
The debate on value for money dealt with the extent to which we will realise the net current value of the loans. Why have the Government decided to sell £6 billion-worth of loans in one go, instead of testing the market by, perhaps, first selling smaller amounts? The hon. Member for Wolverhampton, South-West spoke about private finance initiative deals and the potential for large windfalls. If we sold loans in smaller chunks, which is possible with such financial products, we could see what happens with onward sales and whether initial estimates were correct. Why have the Government decided not to do that?
Finally, on clause 1(4)(c), what
“warranties or indemnities or other obligations”
does the Minister envisage with respect to a sale?

Rob Marris: It is a pleasure to serve under your chairmanship, Miss Begg. I have a particular interest in this Bill: the university of Wolverhampton is the most accessible mainstream university in the United Kingdom with the fifth highest number of students. Owing to that accessibility, it has a lot of poor students taking out loans.
Will the Minister provide further details on “transfer arrangements”? That term seems to be very broad, even though the Bill contains some qualifications of it. What is the mechanism and role, if any, for Parliament in the scrutiny of such arrangements? As I read the Bill, that will not be done through statutory instruments, but will be a commercial decision taken by the Department. Ultimately, of course, it would be for the National Audit Office to investigate and for the Public Accounts Committee to examine. However, will he say a little more about parliamentary scrutiny?
Paragraph 16 of the explanatory notes, which deals with clause 1, states:
“For example, the Government does not intend to grant purchasers the right to alter the repayment terms of sold debts.”
That appears admirable. However, as far as I can see it—I am always open to correction—that is not in the Bill. Why is it not? I am seeking reassurance for those who have taken out loans or might do so in the future.
Clause 1(4)(f) refers to
“specifying consequences of the breach of a provision of the transfer arrangements.”
Will the Minister give one or two examples of what penalties might be included should a loan purchaser breach the provisions of the transfer arrangements?
Finally, clause 1(3) states:
“Transfer arrangements may relate to...some or all of the Secretary of State’s rights.”
Will the Minister say a little more about what rights might not be transferred? The implication of that wording is that some will be transferred but that others might not. Will he elucidate on that?

Bill Rammell: I shall try and respond to a number of the points made.
I repeat to the hon. Member for South Holland and The Deepings a point that I have made a number of times, but which is important to state again for the record: the terms and conditions will be exactly the same whether the graduate repays their loan to the Government or to the private sector. I welcome the fact that he accepted my reassurances on that matter.
The hon. Gentleman implied that there are concerns about the Secretary of State’s powers under the Bill. However, let me be clear: the Secretary of State has the power today, if backed by Parliament, to alter the terms and conditions of access to student loans.
I made a point at the general election about the policy of the official Opposition—I believe that is still their policy. They wished to charge a commercial rate of interest on student loans, instead of no real rate of interest, which continues to be the Government’s policy. If a Conservative Government were elected, they would be free to introduce legislation and empower the Secretary of State to alter terms and conditions. That would be the case even without the Bill, because the power on terms and conditions resides with the Secretary of State, whether the loans are owned by the Government or by the private sector.
The hon. Member for South Holland and The Deepings asked about the ability to protect the graduate. It is through the measures in the Bill and through the contractual process that we can afford protections to the graduate. I gave instances this morning of how we will ensure that it is the Student Loans Company that carries out the administration on behalf of any private sector interest and how we will ensure that there is access to the same independent assessor, where there are problems, as is the case in respect of Government debt.

Robert Wilson: The explanatory notes state that, under clause 1, the Secretary of State can sell “part of a loan”—for example, 40 per cent. That could lead to there being two owners of the loan: the Student Loans Company and a third party. How would protection of the individual work in that situation?

Bill Rammell: We are not anticipating that part of a student loan will be sold to the private sector and part will remain with the Government. Nevertheless, whether someone’s debt is owned by the Government or by the private sector, exactly the same terms and conditions will apply and they will be governed by regulations passed in the House.
The hon. Member for South Holland and The Deepings said that he had serious doubts about the reason for introducing the Bill, and questioned whether it was about the transference of risk or about an up-front income stream for the Government. I said this morning—and I repeat—that it is about both those objectives. On his point about risk, it is certainly the case, looking forward, that having the ongoing income stream from student loans on the Government’s books entails a degree of risk that ideally we would not wish to be on the Government’s accounts. Because the private sector operates with that degree of ongoing risk, it would not be a problem for it to engage with that. That is not inconsistent with the sale being an attractive investment opportunity from the perspective of private sector investors.
The hon. Gentleman made a point about value for money. For the record, I reiterate what I said this morning. A robust value for money framework is in place, and although we have made an estimate of the proceeds that we anticipate gaining from the sales during the next three years, that is not set in tablets of stone. If the value for money framework is not met, the sales will not go ahead.
The hon. Gentleman asked whether the sales were not intended just to help the Chancellor of the Exchequer meet the fiscal rules. That is certainly not the case. The proposed sales represent the continuation in principle of the policy to sell student loans that began in 1997 although, interestingly, it was undertaken using plans drawn up by the previous Administration. It is also the case that the disposal of surplus assets is a key part of the present Government’s drive to improve the efficiency of their asset base. Asset sales are certainly not a short-term measure to shore up the fiscal position; rather, they are a vital part of our wider aim to take a longer-term, more strategic approach to asset management across the board in government, as recommended by the Lyons review.

John Hayes: I just want to be clear about the value for money framework, which the Minister says is well established and robust. What legislative shape will it take, and will it be part of the Bill? Will it be included in a supporting memorandum to the Bill or in guidance? Exactly how will it find its way into the legislative framework?

Bill Rammell: Again for the record—I have made this comment a number of times now—I do not believe that the framework needs to be in the Bill. I read into Hansard last week the criteria by which we will establish value for money. The Government are responsible for proceeding with the sales, but the National Audit Office has rightly said that during the first tranche of sales, it will undertake an investigation. I am confident that we will be able to stand up to that value for money assessment. There will then be a report to the Public Accounts Committee. That process will give the arrangements the rigour and robustness that Members would expect.
The hon. Member for South Holland and The Deepings made a point about the reselling of the special purpose vehicle. It is important to make it clear that based upon advice, my strong view is that the loans or the SPV are unlikely to be sold on. If we consider mortgage-style loans, for example, that has not occurred in almost 10 years with the previous sales, so there is no track record of the SPV being sold on in that way. We looked at the issue of windfall gains this morning, and I shall make the point clear, having considered the issue in further detail. The refinancing gains, which my hon. Friend the Member for Wolverhampton, South-West mentioned this morning, are not analogous to windfall gains for the purposes of allowing clawback in the event of the onward sale of student loans. The 2002 private finance initiative refinancing code allows for a 50:50 share of refinancing gains, should private sector partners, during a project, be able to refinance it on more favourable terms than was originally the case. For example, once a building is completed, the risks may be reduced and the financier can provide more favourable loans. However, the key distinction is that no transfer of assets is involved. Conversely, for the sale of student loans, we believe that we will achieve best value for money by fully transferring the controlling risks associated with the loans to the private sector, thus not retaining clawback rights over windfall gains in the event of an onward sale of the SPV, which in any case, we regard as unlikely.
The hon. Member for Brent, East asked why we did not start with a tranche of sales smaller than £6.3 billion. Again, that figure is an estimate of the proceeds that we anticipate receiving during the coming three financial years. We have broken the figure down, and in the first year, we anticipate receiving £3.4 billion. However, that income sum is not set in tablets of stone. If the market conditions are not correct and we do not believe that sufficient information is available to investors to enable us to achieve value for money, the sales will not take place.

Sarah Teather: That was not quite my question. I asked why the Government wanted to do it all in one go. Why not sell a smaller amount first, and test the market to see what happens to the onward sales and whether we achieve the correct value for money? Why do it all in one chunk?

Bill Rammell: With respect, that is what we are doing. The student loan sum is £18.1 billion, and we do not plan to sell it all off. We are taking a prudent approach to the proceeds that we reasonably estimate we can achieve from the sale in the coming years, but the figure is not set in tablets of stone. If we do not believe we can demonstrate value for money, the sale will not go ahead.
My hon. Friend the Member for Wolverhampton, South-West asked an important question about the penalties in subsection (4)(f). They will be determined in detail in relation to each sale’s contract. For example, they might include compensation to a borrower if there is any breach in terms. This is an enabling Bill, and it is important that we retain the flexibility to deal with all eventualities.

John Hayes: I sense that the Minister is about to reach his exciting climax, but I want to return to the cost of sale. The stand part debate, which is about fundamentals, is the best time to deal with that. This morning, I asked about the cost of the sale. I did not mean the value of the product being sold, but the cost of the process of sale. The Minister said that he would make the Committee aware of the costs that have been incurred so far, and that he would give us an estimate of the likely costs of the process. Will he bring that figure to the Committee during our consideration of the Bill or shortly thereafter, and will he place it in the Library?

Bill Rammell: I shall certainly do so. As I said to the hon. Gentleman last week, his definition of “exciting” is somewhat different from mine. I gave that commitment, and I hope to be able to provide the figure by the end of our proceedings today. If I cannot do so, I shall write to members of the Committee and place the figure in the Library.

Sarah Teather: The Minister did not answer two of my questions. I asked only four and kept them brief, so I hope that he will answer them all. I asked him what
“warranties or indemnities or other obligations”
he envisaged making under the clause and whether he would put before the Committee an analysis of which risks he intended to keep and which he thought he would transfer.

Bill Rammell: I shall set out in detail the warranties and indemnities when I write to members of the Committee. As for the question of which risks we are transferring, I set out this morning the range of factors on which investors will base their judgment of risk when deciding how much money to bid for loans. That will be assessed in the value for money framework, and I am confident that we can demonstrate value for money.

Sarah Teather: I cannot believe that the Minister’s Department has not analysed which risks will be transferred, because the transfer of risk is the whole premise of the Bill. If the Minister does not have the information now, perhaps he could undertake to write to us.

Bill Rammell: I can do so, but—I may be wrong—I think that it is fairly straightforward. If the debt is transferred from the Government to the private sector, a range of factors must be taken into account to determine how much of the money, if it remained with the public sector, would eventually come back to the Government. That is the risk that we are transferring, and I set out the risk factors this morning: the number of graduates in employment and earning more than £15,000 a year; the number who die before their debt is paid off; and the number who become permanently disabled. The purchaser of a debt will make a judgment on a range of factors before making their bid. Similarly, the Government will make a judgment, measuring a bid against the value for money framework. I believe that, in those circumstances, we will be able to demonstrate that we have achieved value for money and allow the sale to go ahead.

Sarah Teather: The Minister mentioned something else this morning that I did not know—the Government will underwrite a loan if a graduate becomes permanently disabled. That is a risk that the Government will keep. I want a list of which risks the Government are keeping and which they are transferring. I am sure that that analysis has been done.

Bill Rammell: I think that this is a genuine misunderstanding. I shall happily put the matter on record by writing to members of the Committee, but the Government would not retain that risk; permanent disability is one risk factor that is taken into account in the sale. I shall happily write to the hon. Lady and set that out the position.

John Hayes: I am extremely grateful to the Minister. As ever, he is being generous, and I am reluctant to drag out his peroration with a series of Wagnerian peaks and troughs. However, there are two matters that we must consider. First, to support a point made by the hon. Member for Brent, East, rights and obligations—those are the words that she used—must be sufficient to effect a transfer. To amplify her point, what are those rights and obligations? Secondly, the Minister has said that the quantification of risk involves a fairly straightforward series of actuarial calculations. If those calculations are in the public domain, can they be collated for our scrutiny? If they are not in the public domain, but will be made available to potential purchasers as he suggests, it does not seem unreasonable that we, too, should know what they are.

Bill Rammell: No, it is not. I thought that we debated that this morning. For the record—I am happy to follow this up in writing—assessing the value of the loan book requires a number of projections of the repayments that borrowers will make far into the future. We estimate the rate at which graduates will repay and the number of loans written off—for example, when borrowers become permanently disabled. Because such projections must be based on assumptions and estimates, a degree of risk is built in. Those risks are transferred to the private sector with sale. I hope that, with those clarifications, we can agree that the clause should stand part of the Bill.

Question put and agreed to.

Clause 1, as amended, ordered to stand part of the Bill.

Clause 2

Sales: supplemental

Question proposed, That the clause stand part of the Bill.

John Hayes: I hope that this debate will be rather shorter than our first one. However, it was important—I am grateful for your indulgence, Miss Begg—to deal with fundamental issues respecting the new power at the beginning of our consideration.
My question about clause 2 is straightforward. The clause will grant the Secretary of State flexibility in sales contracts that he thinks are appropriate, in addition to those specifically expressed elsewhere in the Bill. The explanatory notes to clause 2 state:
“The Government intends to require purchasers to use HMRC and the SLC as part of the sales contract.”
If that is the case, why is it not in the Bill? Why are Ministers given flexibility in that regard?

Sarah Teather: I have a couple of questions about subsection (4). If the Government lowered the threshold at which loans could be paid back, the purchaser would get more money than they expected. The subsection will allow the payment of more money as compensation if purchasers get less money as a result of the threshold being raised. What will happen if a future Government do the reverse? Is reverse indemnity written in, or does it only go one way?
On subsection (6), what will happen if borrowers have a dispute? Currently, they must deal with the Student Loans Company. I get an awful lot of complaints that the SLC has failed miserably to stop taking payments after the loan has been paid off. It is quite a common piece of casework in most MPs’ offices. How will the Bill change those arrangements? Will graduates have to deal with the private sector, or will they continue to deal with the SLC? Who is the intermediary mentioned in subsection (6)?

Bill Rammell: In response to the hon. Gentleman’s question about the flexibility in sales contracts and the notes’ reference to HMRC and the SLC, it will be enforced through the contract, and we do not believe that it needs to be explicit in the Bill. In response to the hon. Lady’s question about the transference of risk if the repayment threshold is lowered, it could be described as a one-way process. The measure is about the transference of risk. It is fairly unlikely, whatever Government are in power—although it cannot be ruled out—that the threshold will be reduced. The process is about encouraging and asking the private sector to take on longer-term risk, and protections must be in place for that to happen.
To return to the question of why HMRC and the SLC are not included in the Bill in this regard, it is possible that student loan repayment systems might change. The legislation is enabling—it is about a longer-term programme, which is why it is important to include such measures in contracts and not in the Bill.

Sarah Teather: The Minister did not answer my question about subsection (6). Whom will graduates deal with in case of a dispute? Given that disputes are quite common, the question is of concern to graduates.

Bill Rammell: Our intention is that graduates repaying debts to the private sector should be able to deal with the same independent assessor to whom they can refer at the moment in respect of debts to the Government.
The hon. Lady raised a point about complaints that students are overpaying at the end of their term of repayment. If one looks at the evidence, two thirds of the overpayments are of less than £400. That happens because it is difficult to predict exactly when somebody will reach the end of their loan, given the nature of the taxation system through HMRC. However, in response to Ministers, the Student Loans Company is rightly looking at how it can improve the system in the likely final year of repayments. It hopes to communicate directly with the graduate in question to put a stop to the repayments at an earlier stage, so that such overpayments do not take place. I hope that that answers the question.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clause 3

Onward Sales

Question proposed, That the clause stand part of the Bill.

John Hayes: We are flying through the Bill, and I would like to slow things down a little by encouraging a thorough examination of clause 3. Clause 3 is a fundamentally important part of the Bill with regard to resale, which was mentioned this morning and this afternoon as an area of concern. I wish to draw attention to a way in which the Bill might usefully be amended, and perhaps the Government might consider it before Report or elsewhere during the Bill’s passage. This morning we focused on subsection (6) of clause 3—on onward sales—and particularly on line 16 and the phrase “Transfer arrangements may”, which is followed by a series of steps that the Secretary of State can take to limit the circumstances in which transfer might take place. I am not sure why it says “may” and not “will”. The point was dealt with earlier to some degree, but I do not feel that we have had a satisfactory answer.
I have no doubt that the Government are determined to ensure appropriate protection. However, it is unhelpful to leave doubts in the Bill about whether or not the Secretary of State will use those powers. It is useful for the powers to be stated in the legislation, but I want at least to probe why “may” has been used, rather than “will”.

Angela Watkinson: The Bill provides for transfer arrangements to be made without the knowledge or consent of borrowers. That is standard practice in these matters. Does my hon. Friend feel that something should be included in the Bill that provides a duty to inform borrowers about the new company to which they are indebted? Although they deal directly with the Student Loans Company, borrowers should still have information on the company that is holding their debt if it is different from the original company.

John Hayes: Yes, throughout this part of the Bill there is a need to strengthen the kind of reassurance that my hon. Friend draws our attention to—I suppose linguistically that that should have been “to which she draws our attention”; one does not like to end sentences with prepositions.
My point is about the intent of the Secretary of State. It is about whether we are being slightly too permissive in the way in which we address those issues of assurance, security and certainty, which are necessary if graduates are to feel that their circumstances have, as Minister assured us, remained unchanged by the transfer. Therefore, with respect to clause 3, I wonder about both my own suggestion and that of my hon. Friend.
I think that I would go further. If one looks at line 23, it might be useful for the Government to prohibit transfers to an organisation, body or individual outside the jurisdiction of the United Kingdom. The Minister will have to tell me whether that is legally possible. I have a slight worry that if we are passing into law an arrangement that gives the Secretary of State certain powers to affect ongoing sales, and if that happens to contradict the commercial reality of an ongoing sale to another country, a multinational company, or a body that is outside our jurisdiction, would that have much weight in terms of both the public interest and, more especially, the interests of graduates? I wonder whether we should be less permissive in respect of ongoing sales and whether we should say something about risk, or perhaps about a prohibition on the sale to multiple purchasers, although that is a matter for the Minister to comment on.
I take the point made by the hon. Member for Brent, East that such a move is unlikely, given the assurances that we have had. In respect of ensuring the kind of certainty and security that we all want, the worst case scenario would be for many people to purchase parts of this book all over the globe and for us to feel that we have lost control about what then happens. I guess that the Minister will assure us that that is fanciful and that every step will be taken to ensure that that does not happen. However, there is no mention of the word “prohibit” in the Bill. We have a lot of mays, expectations and hopes, and a fair amount of good will, but we do not really prevent any of those concerns in the Bill. I wonder whether we should be slightly more restrictive about how we deal with this. I raise the points for the sake of proper scrutiny and discussion, but there are legitimate fears about resale in that regard.
Clause 3 specifically gives the purchaser the right to sell the loans to another buyer after the initial sale and, subject to any limits on that right, specifies the powers of the Secretary of State in that regard. Therefore, we are accepting that the resale might take place and that we need to be cautious about that, otherwise we would not have included anything in the Bill about the Secretary of State’s capacity to intervene.
The necessary safeguards are of critical importance, given that history has taught us that loans can be repackaged and can involve a large number of different players, some of whom could be outside the jurisdiction of the Secretary of State. It is appropriate to say another word about the security of data. We do not want to dwell on the Government’s misfortunes because that would be both unkind and unheroic. It is important to point out that the greater the number of people involved in this, and the further the chain moves from its place of origin, the more those doubts will loom large. I think that the safeguards are critical. I am grateful for what the Minister has said both on Second Reading and again today, but this is critically important to clause 3.
On Second Reading, on this very subject, my hon. Friend the Member for Daventry made such a point when he described the hypothetical example of a Lithuanian bank securing a package of loans. Under the current proposals, it seems entirely possible that a foreign bank could purchase part or all of this package, and that would create all kinds of issues regarding their relationship with both the debt and their own local policy, in as much as it contradicted our approach. I have nothing against Lithuania, by the way, and I am sure that my hon. Friend the Member for Daventry has not either.
I also wonder whether we might think about the position of EU students. Again, we had some discussion about that this morning. There is a question of how this will change over time. The Minister accepts—he predicted it—that this is a growing issue. The changes to the entitlement of EU citizens are only just beginning to take effect. Indeed, they will take effect during the course of the sale of this product. Given that we might not sell the book in part or whole for some time—perhaps some years—by the time that it is sold, this will be a matter of even greater significance. We could well be dealing with a larger number of people who are not living in the United Kingdom. There are questions about both the management of this process and the collection of debt. This seems to be the aspect of the Bill on which Minister might want to reaffirm one or two points.
It is important to establish how far the Secretary of State is likely to intervene in any commercial issues associated with the sale. I am sorry to return to this, but it is relevant to the clause—I made the point on clause 1. I am still not clear whether the Secretary of State would intervene if he felt that certain commercial arrangements were not in the interests of the graduate community or the nation. Would he intervene in such circumstances? It says in the clause that he might, or may, but we are not really clear about whether he would. Quite how would he intervene, given that this sale might take place some way down the line? It might not happen in the first six months or the first year. Indeed, we might be talking about events that take place a good time after the original transaction.
I hope that with those points on the clause we have once again highlighted some of our concerns about resale and the way in which the Bill is framed in that respect. I press the Minister once again to look more closely at this to see whether these words might be strengthened so that no one can be in any doubt that the Secretary of State would have not only the power, but the duty, to intervene if the circumstances of resale were unacceptable or inappropriate.

Sarah Teather: I want to pick up on the points that the hon. Gentleman has just made and also our discussion this morning. I was a bit baffled by the reply that changing “may” in subsection (6) to “shall” would completely change the way in which the sale would be recorded on the Government order books. I do not understand that, so will the Minister explain it? Using the word “may” seems to make it perfectly clear that the Government intend to use this power. I cannot see how changing the word to “shall” alters that.
A further answer that was given this morning suggested that the reason that the power was permissive was because circumstances could change and the Government may or may not wish to use that power. Surely if the power is there, it will be written clearly into the Government’s contract with whoever buys the debt. If it is not written into the contract, I cannot see how it can be changed retrospectively, if we suddenly find that circumstances have changed and the Government really want to use it. It would be helpful if the Minister could explain that.
Another question that I asked this morning that was not really answered was about what circumstances would be required for the Government to use any of these powers. I accept that the Minister might wish to use the three powers separately, but could he outline some of the likely circumstances that would trigger the use of the Secretary of State’s powers?

Rob Marris: Following on from the comments of the hon. Member for Brent, East, I understood what the Minister said this morning about the use of the words “may” and “shall”, and whether or not this is on the public accounts. The situation seems strange, but that is the advice that has been given by the experts. The hon. Lady’s point was that if there was no prohibition in the original sale, could a prohibition be retrospectively inserted into the original sale document?
If there was no prohibition in the original sale, company A, having bought from the Government, can sell to company B so that it owns the loan book. Can the Secretary of State insert a prohibition for the future into the arrangements with company B, or is it the case that once the Government have decided, as they might, not to insert that prohibition in the original sale to company A, they cannot insert it later, even if the loan book is sold on down the line to various financial institutions that are perceived by the Government to be dodgier and dodgier?
Does the Secretary of State intend to insert into the transfer arrangements any prior notification clause so that company A, if it considers selling the loan book to company B, must first notify the Secretary of State to give him the opportunity to consider whether to insert a prohibition at that point? Otherwise, if no such protection is built in, company A could buy the loan book and subsequently sell it on to company B, potentially without the Government even knowing. If the Government took a different view of the suitability of company B, they would have missed the opportunity to review whether the arrangements needed to be amended.

John Hayes: That was precisely the point that I was trying to make when I spoke, rather inelegantly, about a chain. Given that the process that the hon. Gentleman has described might take place over many months or years, it is entirely possible that the Government might be unaware. The Bill suggests that the Secretary of State may include provision to make himself automatically a party to any onward sales contracts, but, frankly, if that were to involve a multiplicity of bodies over a considerable period of time, there would be real doubts as to whether he would have that capacity, purely because he would be ignorant of the facts.

Rob Marris: I agree with the hon. Gentleman. I am probing the Government on whether there would be some kind of notification clause, if I can put it like that. With the greatest respect to my hon. Friend the Minister, for whom I have the greatest regard, this is arguably a Treasury Bill, and this is probably the ninth such Committee on which I have sat. People who deal with the Treasury are seared by the experience of Mapeley—that name might mean something to my hon. Friend.
Mapeley bought Government buildings and sold back the lease. Unfortunately, the then Paymaster General was, to put it charitably, not fully informed by her officials as to the identity of Mapeley. There were two Mapeleys. One was called something like Mapeley Holdings UK Ltd and the other was called something like Mapeley Holdings, Bermuda Ltd. Hon. Members can guess which company ended up owning that estate and not paying tax in the UK, which was rather ironic given that the buildings had formerly been owned by Her Majesty’s Revenue and Customs and had been leased back to it. I wonder whether my hon. Friend the Minister can assure me that there will not be any transfer to an offshore financial company that will not be subject to tax in the United Kingdom.
Will thought be given to putting prohibitions in the sale agreement in respect of a further transfer from an onshore company, or company A in my example, to an offshore company—company B—because otherwise the Government will be losing out on tax revenues? If the loan book ended up in the hands of an offshore company—for example, “SLC (Bermuda) Holdings Ltd”—that might ex post facto affect greatly all the value for money calculations that had been made before the process was put in train. One part of the value for money calculations would be the potential corporation tax payments from the purchasing company, as a trading organisation, back to the Government. However, if that trading company, or an ultimate purchaser down the line, were not UK-registered and not paying UK tax, it would somewhat change the equation.

Bill Rammell: Let me set this out in as up front a way as I can. I hope that I can reassure members of the Committee. It is pertinent to ask how the Government will be sure that an ongoing sale on the part of a special purpose vehicle has taken place, despite the fact that for 10 years we have been operating a special purpose vehicle in respect of mortgage-style student loans and there has been no onward sale. There is no question of the Government being unaware because we will have used, in the initial contract, one or other of the powers under clause 3(6) to ensure legally that we are a party to the onward sales contract. We would expect a notification clause to be part of the contract, and we would ensure that there was. I hope, on that basis, that members of the Committee are reassured.
As for the question asked by the hon. Member for Brent, East, I am not sure, according to the rules of the House, whether I am allowed to acknowledge that I have debated it with my officials. I am sure that Hansard will correct me if I was not supposed to have done so. Were we to say “shall” instead of “may” in clause 3, that would be contrary to the current accounting rules in that the proceeds would not count as a sale and thus release resources to reinvest.

Sarah Teather: Is the Minister willing to publish that advice to the Committee so that we can understand its basis?

Bill Rammell: I am more than happy to do so. The reason for the proposal, as a possible tool in our tool box, is that the rules governing the classification of Government debt change from time to time. As I said this morning, the rules are different in respect of the mortgage-style student loans, which is why the sale under discussion will be undertaken on a different basis from the basis of the original loans. I will happily write and confirm that.
As for the question asked by the hon. Member for South Holland and The Deepings, we have made matters clear. Our views will be reported in Hansard. As with any commercial sale of debt, it is not normal practice to write to the borrower in advance. However, as soon as a sale has taken place, the Student Loans Company will write to the individual graduates who are affected.
As for sales to bodies outside the United Kingdom, to which the hon. Gentleman referred, there is a track record. Thinking back to asset sales undertaken under the Conservative Government, I do not recall them saying that there ought to be prohibition on the sales of gas and water. The key protections are that borrowers should be protected, that we have sufficient mechanisms in place to give us control, and that loans remain governed by English law.

John Hayes: There are two issues. One is the protection of those graduates involved, which is critical in respect of multiple sales and sales that take place outside UK jurisdiction. Indeed, we would not have to build so many caveats into the Bill if that was not a problem; we are giving the Secretary of State additional powers partly to ensure that very protection. The other of my concerns, the effect on the public interest in respect of offshore companies, was raised by the hon. Member for Wolverhampton, South-West. I use the term “outside UK jurisdiction” broadly, but it might include the sort of concerns that he raised. I speak not only about the protection of the graduates concerned but about the public interest. Multiple purchasers in foreign countries and a range of offshore companies—is that the future we want to see for the student loan book?

Bill Rammell: If we look at the track record, that is not the scenario that we are projecting. It is my understanding that through paragraphs (a), (b) and (c) to clause 3(6), which put a number of tools at our disposal, the Secretary of State will be able to make judgments about the onward sale in order to protect the graduate. That is of fundamental importance. It is clear—for the record—that we have those protections in place.
The hon. Gentleman also raised some questions about data—an issue that was the subject of some debate in Committee this morning. He argued that the greater the number of people involved, the greater the potential for risk. It is important to state, as I did this morning, that for practical purposes personal data will remain with the Student Loans Company, which will act as agents of the purchaser. The bonds will be tradeable in the market, but loans will remain with the special purpose vehicle, which is most unlikely to be sold.
The criminal penalties in respect of the untoward and illegal onward passing of data are significantly increased under the Bill, with a maximum prison sentence of two years. We have a very robust framework.

John Hayes: There are two circumstances in which data may need to be made available. The first is in order to tempt a prospective buyer. That would not mean that the data did not need to be anonymised, but enough information would need to be made available to potential purchasers to ensure them of the character of the risk and the value of the product. The second circumstance, which was alluded to this morning, is for audit purposes. Will the Minister explain both circumstances in more detail, so that the Committee can give them full and proper consideration?

Bill Rammell: I am happy to try to do that. Before a sale takes place, a potential purchaser needs to understand the type of debt being purchased. For example—I think that I used these words this morning—an indication would be given of the graduate income level, age and other such factors, but it would be given on an anonymised basis so that it could not be traced back to individuals. That is an important protection. There would also be a need for information, after sale, for audit purposes. To some extent, audits are undertaken on a sample basis, so a sample of individual personal details would need to be transferred to the special purpose vehicle. However and as I said this morning, that would be undertaken in respect of the existing mortgage-style student loans. That data transfer is undertaken by a protected, encrypted channel, and that would be our intention for the income-contingent loans.
Finally, the hon. Gentleman raised points about other European Union students. I made the point this morning that European Union students have been able to access loans for fees only since 2006, so we are not yet into the repayment phase. There is EC directive 2001, which, crucially, enables us to take action in the UK courts to chase a debt that is in default, and then to have that ruling enforced within the court of the country in which that individual resides.
I believe that that will give us a robust protection over time. We want certainty that, even if a European Union student comes from a country where the cost of living and average income are less than in this country—so that they are probably unlikely to end up earning more than £15,000 a year—the banding system for thresholds will reasonably ensure that people repay, wherever they reside after graduation.

John Hayes: This is an important issue, and the reason is that we may not be selling the loan book in the short term. We have all been clear that this may take place over many years, according to market conditions. Given the likely change in the character of the student population, and the changes that the hon. Gentleman has detailed, it would be interesting to know whether he and his Department have done any modelling on the nature of the student population, and the consequent nature of debt. He has indicated that they have, because he started to talk about the circumstances in some of the countries of the EU and their ability to repay loans. That modelling would be critically important to the sales, would it not? If I were a potential purchaser, for example in 2009 or 2010, I would want to be looking at the proportion of people who had taken these loans who live in different parts of the EU. By the way, Miss Begg, when I mention the EU, I expect a thunderclap and a streak of lightning, but we will leave that to one side. I would want to conduct that examination so that I had a reasonable chance of accurately assessing repayment profiles. Is that reasonable? Is that modelling taking place, or has it taken place? If not, should it take place?

Bill Rammell: The modelling on repayment track record cannot take place.

John Hayes: Modelling can.

Bill Rammell: Well, modelling can, but the repayment track record is not known, because the loans for fees for European Union students started only in 2006. There is, however, a certain amount of good track record for UK citizens who live abroad or who emigrate to other countries—where such records exist and where there are robust repayment systems. With the legal processes that are now in place, which have been achieved only by co-operation with our European partners on repayment mechanisms, I am confident that we can ensure that wherever students reside their loans will be repaid.

Rob Marris: I am not sure that my hon. Friend the Minister had the opportunity to answer my question on prior notification by company A of a proposed sale to company B, and I wonder whether he could deal with that. Let me mention another issue, however. I might have misunderstood what he said. My understanding is that what he said this morning about the word “shall” in clause 3(6) was slightly different from what he said this afternoon. I am in no way suggesting that he is ducking and diving, but I want to be clear.
My understanding this morning was that if the word “shall” replaced the word “may” in clause 3(6), that would mean that the loans would stay on the public account. I understood my hon. Friend as saying that, were we to leave the word “may” in the Bill, and the Secretary of State then inserted a prohibition in the sale agreement under that permissive power, the loans would not go off the public account. If we get the wording one way—“shall”—it means they will not go off the public account; on the other hand, if we leave “may” in the Bill, and the Secretary of State then inserts a prohibition, they also will not go off the public account. If it be the latter case, that would tend to militate against the Secretary of State using the permissive power to insert the prohibition. I would like some idea as to which of those two scenarios might be the case.

Bill Rammell: I am genuinely not trying to duck and dive. It is not my style to do so. My clear understanding is that, were we to insist upon the use of clause 3(6)(a), that would lead to a reclassification of the debt, and we would not be able to transfer the debt from the public to the private sector. However, the rules on classification may change, which is why, at this stage, we feel it prudent to keep that provision in. We would not want to have to come back and legislate were the rules to change.
 Rob Marris indicated assent.

Bill Rammell: I can see by the nods that I am getting that I have answered my hon. Friend’s question. Even if we were not able to use that provision because the rules of classification had not changed, we have other tools at our disposal to protect the graduate’s interest.

Sarah Teather: That exchange was extremely helpful, but I am still concerned about the point made by the hon. Member for Wolverhampton, South-West. It remains the case that the Government are very unlikely to use this power until such a time as their accounting rules change. That is my understanding of the exchange. Will the Minister clarify that point, and will he tell us whether he has any kind of powers that can prevent the onward sale of the SPV if the Government do not like it?

Bill Rammell: That is but one tool at our disposal. If we look at the others that are available, we see that we are able to—this is in clause 3(6)(b)—
“require further transfer arrangements to be effected by way of novation or other arrangements to which the Secretary of State is a party”.
I believe that gives the protection that hon. Members are looking for, and I hope that we can agree that the clause should stand part.

John Hayes: I do not quite understand the difference, in that case, between subsection (3) and subsection (6). If the hon. Gentleman is saying in response to the point made by the hon. Member for Brent, East—perhaps he wants to revisit this; I think he said subsection 6 but he may have said subsection 3—

Bill Rammell: Clause 3(6)(a).

John Hayes: Yes. That is what I thought he said. I do not quite understand the hon. Gentleman’s point, because if he is saying that the Government do have the power to effect these further commercial changes—this resale—I do not understand why the clause should not say “shall”. Either the Government have these powers, or they do not. Either they intend to use them, or they do not. Either they intend to use them by this means, or by some other prohibition. I am not absolutely clear about this, and I am getting less clear as time goes on.

Bill Rammell: I am not responsible for drawing up the rules on the classification of Government debt, although clearly I support them. They are there for good reasons. My clear understanding is that were we to insert the word “shall” in clause 3(6)(a), that would make us unable to classify the debt as a transfer from the public to the private sector. However, there are other protections available to us in clause 3(6)(b) and (c) to enable us, through the contract, to protect the interests of the graduate.

Sarah Teather: Perhaps the Minister could explain what “by way of novation” means so that we understand exactly what would occur. Reading paragraph (c), it is not clear how it differs from paragraph (a), except by virtue of being a different way of explaining it.

Bill Rammell: We can bat this backwards and forwards. All I can say, clearly and precisely, is that the advice I have, based on the accounting rules, is that the mechanisms available to us in clause 3(6)(b) and (c) enable us to protect the graduate interest. Were we to insert the word “shall” in respect of paragraph (a) so that in all circumstances we would have to prohibit the making of further transfer arrangements without the consent of the Secretary of State, it would contravene the rules of classification and it could not be classified as a transfer from public to private sector debt.

Sarah Teather: I am genuinely seeking clarification. I am not trying to prolong the Committee. I understand the Minister’s point about inserting the word “shall”, but that is not the discussion that we had a few moments ago, which was that if he enacted paragraph (a), it would affect the way in which the loans were recorded on the balance sheet. I thought that we had come to a point where we understood that the Government are very unlikely to use the powers under paragraph (a) until the Government accounting rules are changed. Therefore, for the Committee’s purposes, paragraphs (b) and (c) are essential in terms of the protection that is enabled. I am trying to get the Minister to clarify what those protections really mean.

Bill Rammell: My apologies. Perhaps it would help if I set this matter out in writing. We will certainly have at our disposal the protections afforded by clause 3(6)(b) and (c), which will enable the Secretary of State to insert into a contract, for example, the stipulations that we expect the Student Loans Company to continue to administer the loans on behalf of the private purchaser and that the graduate will continue to have access to the independent assessor. Those are two examples, but I will happily set out for the hon. Lady in writing the kind of examples that those paragraphs will give us.

John Hayes: Perhaps I might make a suggestion to the Minister because it seems to me that we are in a bit of a pickle. My understanding is beginning to emerge from the murky darkness into a clear light. It seems that the Minister is telling us that paragraphs (b) and (c) are sufficient, in his judgment, to offer the kind of protection that hon. Members in the Committee—and I am sure in the whole House—would seek. In that case, the questions are begged: why are paragraphs (b) and (c) grouped with paragraph (a), and why can they not be prefixed with the word “shall”? Why are those paragraphs all part of the same provision?
I agree with the hon. Lady that the likelihood of using paragraph (a), given the current rule, is small. That is why “may” is there, but I am not sure that that is a convincing prefix for paragraphs (b) and (c). I want to revisit this issue on Report because it is clear that the eagle eyes of hon. Members on both sides of the Committee have focused on it. We all spotted this “may” and “shall” issue and thus we all spotted what seems to be a potential weakness.
The Minister has gone some way to reassuring us that there is strength at least in paragraphs (b) and (c). During the passage of the Bill, will he consider looking at the drafting of this subsection again to assist those of us who have been in the darkness and come into the light in bringing others to the light with us?

Bill Rammell: I am always happy to consider constructive proposals. Having looked at the matter in detail, I do not believe that we need to amend the legislation at this stage. If amendments are tabled on Report to the effect that has been set out, I will consider them. However, I state for the record that under clause 3(6)(a), (b) and (c) we have the protection that members of the Committee are looking for. I hope that on that basis we can agree that the clause should stand part of the Bill.

Question put and agreed to.

Clause 3 ordered to stand part of the Bill.

Clause 4

Loan regulations

Question proposed, That the clause stand part of the Bill.

Sarah Teather: Just for clarification—I think that the Minister will be able to answer my question easily—clause 4(3) refers to
“the reimbursement of costs or expenses incurred by a loan purchaser”.
Does that relate to fees for sorting out the purchasing of the loans in the first place or to costs that are incurred if somebody defaults on the loan?

Bill Rammell: It is the latter. I think that that was clarified this morning.

Rob Marris: May I suggest that my hon. Friend considers tabling amendments to clause 4(3) on Report to make it clear that that is the case, because it is not clear in the wording?

Bill Rammell: My apologies. I discussed this issue with my hon. Friend and I think that I am right in saying that he has tabled an amendment on it. I am sympathetic to the framing of that amendment, but I need to look at it in detail. If I can be reassured that it would not have an unintended consequence, I will be happy to accept it on Report.

Question put and agreed to.

Clause 4 ordered to stand part of the Bill.

Clause 5

Repayment

Question proposed, That the clause stand part of the Bill.

John Hayes: There are issues about who might act as a collector on behalf of the loan purchaser. Clause 5(2)(a) stipulates
“collection by a person acting on behalf of a loan purchaser”.
We have some doubt about that. Some reassurances were offered during our earlier considerations, but it would be useful to put those on the record again here. The anxiety is that the collection agent should be the Student Loans Company, or someone directly accountable to it; that the line of accountability should not be stretched to a point where graduates are disadvantaged.
Clause 5(2)(b) concerns the issue of Her Majesty’s Commissioners for Revenue and Customs. Regarding the repayment of loans by people who are not resident in the United Kingdom, I wonder whether we should firm up the fact that the power to collect student loans lies with HMRC and the Student Loans Company, and not another agent. That was discussed at some length during our deliberations this morning, but these are important matters for popular reassurance. I hope that the Minister will clarify and amplify some of the points that he made during that earlier scrutiny.

Sarah Teather: We discussed this issue this morning, but I was not clear about the answer. I asked the Minister what would happen in the case of a default. He said that there is no need to pass data between the Student Loans Company and the SPV, but what I was asking was whether there is a legal prohibition, either in the Bill or in the data protection legislation, to ensure that that does not happen.

Bill Rammell: The latter would come by means of a contract and I hope that that provides a reassurance. In respect of the hon. Gentleman’s questions, we have made it clear that we intend to ensure, by use of contractual obligations, that the private purchasers, through the SPV, use the Student Loans Company to administer the loan repayments on its behalf. We intend the Student Loans Company to carry through its review of the administration of student finance, which is called “Customer First”. That is very much our intention. However, if we were to stipulate in statute today that the Student Loans Company would carry out that task for ever and a day, that would bind our hands unnecessarily and we would have to come back to legislate on that issue when there are already other protections in place.

John Hayes: That was a weak argument when it was used this morning and it is a weak argument now. Many such bodies are specified in legislation. The nature of legislation is that sometimes one has to specify those agents and bodies—those organs of government. The Government would be much more likely to satisfy the doubts and assuage the fears of those who have reservations about this matter if it were to put what the Minister said at the beginning of his remarks in the Bill. That would be something of the order that collection should be by the Student Loans Company.
I understand that the Minister is concerned about fixing that measure in stone, but my goodness, if that view prevailed in respect of legislation, we would pass virtually nothing here. So I am not so sure that that is a very convincing reason not to put this measure in the Bill. At the very least, it would deal with any doubts that exist about people collecting debts who ought not to be.

Bill Rammell: I am genuinely not convinced that making that change is necessary. I know that we are in something of a limbo because amendments have not been tabled, but if the hon. Gentleman feels strongly about this matter then, without giving any commitment, he should table an amendment on Report that we could debate and consider, although I do not believe that that is necessary.
The hon. Gentleman’s other point was in respect of those people who are repaying outside of the pay-as-you-earn system. They must undertake those repayments, at the moment, directly to the Student Loans Company. That will continue to be the case whether or not—again, I state this for the record—the debt is owned by the Government or by the private sector.

Question put and agreed to.

Clause 5 ordered to stand part of the Bill.

Clauses 6 to 7 ordered to stand part of the Bill.

Clause 8 - None

Question proposed, That the clause stand part of the Bill.

John Hayes: This clause would, in effect, extend the power of the Welsh Assembly to administer these matters. That may be a slightly clumsy way of putting it, but I think that is its gist. For the purposes of the record, can we have an assurance of what that would mean in practice? Presumably, it means that the Welsh Assembly might take a different view about when to sell, what to sell and how to sell the loan book. Also, what estimate have the Government made of the incompatibilities that that situation could produce?

Sarah Teather: I asked a question this morning during the pre-legislative scrutiny and the Minister said that the proceeds from any sales would come straight back into the Treasury. It is not clear to me what benefit—if any—there is to the Welsh Assembly in enacting any of these powers.

John Hayes: That invites another question, about the proceeds from the sales generally, but it is a very good point. We are not for a moment suggesting that the proceeds of the sale should be hypothecated, because that would be a spending commitment and if I were to make that I would be on the carpet, even though the Opposition Whip has briefly left the room. However, the hon. Lady is right that there is an issue about the receipts of the sale. That raises the question why the Welsh Assembly was included. More especially, there is an issue about the compatibility of any policy that might be enacted in Wales that was at odds with what was done here. Given that an immense number of students from Wales study in England and students from England study in Wales, it would seem to be in all our interests to ensure that policy is consistent and coherent. Has the Minister made any assessment of that? In offering that assessment to the Committee, will he address the pertinent point raised by the hon. Lady?

Bill Rammell: Let me set out the general framework, and then I shall respond to those two points. As responsibility for student loans in Wales was devolved to Welsh Ministers back in 2006, it is important that the provisions apply equally to Wales. Any decision on the future sale of the Welsh loan book needs to be made in Wales by Welsh Ministers. Clause 8 gives Welsh Ministers the power to do that in the way that they have requested. Welsh Ministers are keen to ensure that maximum value for money is achieved for Welsh student loans and the powers are in place so that we can ensure that they do so. The Bill will enable them to decide when they deem it appropriate to use the powers, bearing in mind the relevant economic and value-for-money considerations—exactly the same value-for-money considerations that govern our decisions in England.
In accordance with the new devolution settlement agreed in 2006, the Bill will confer executive powers on Welsh Ministers to sell loans for which they are already responsible, mirroring the powers that it gives the Secretary of State for loans for which he is responsible. Those mirror powers are appropriate in these circumstances, as it is clear that that is what Welsh Ministers require. The clause confers on Welsh Ministers functions of an executive nature; it does not give them the power to make that legislation.
Let me pick up on the points that have been made. The first was about the difference of treatment that we may end up with between Wales and England. The responsibility is devolved. Part of the settlement of devolution is that the Welsh Assembly is allowed and empowered, in areas for which it has responsibility, to make decisions that may be different from those in England. In terms of the scale of things, the sums of money are relatively small, as Wales represents £1.1 billion of the £18.1 billion total student loan book. On whether there is an incentive for Welsh Ministers to undertake the step because money comes back to the Consolidated Fund and not the Welsh block, the money coming back to Government will give the Government as a whole greater flexibility in determining its spending priorities. Welsh Ministers cannot have the money directly attributed to their block but, as a DIUS Minister, I cannot have that money directly attributed to DIUS. Nevertheless, I am delighted and delirious to be taking the Bill forward.

Sarah Teather: It is, however, rather odd. The Minister is a Minister in the Westminster Government. It is odd for Welsh Ministers to make a decision that will have an effect only on the books here and that will have no obvious direct impact on their budgets. Is he aware of any discussions between the Treasury and Welsh Ministers about whether that will have any impact on that budget?

Bill Rammell: Just as I do not comment on discussions that I and the Secretary of State have with Treasury Ministers, it is not appropriate and would not be right for me to comment on any discussions that may or may not take place between members of the Welsh Assembly Government and the Treasury.
The fundamental principle governing sales in both England and Wales is that they will enable the transfer of risk and an income stream that enables us to make choices about where that money should be spent. That was the principle on which we had cross-party support for the Bill on Second Reading. I hope that we can maintain that support in Committee.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.

Clauses 9 to 13 ordered to stand part of the Bill.

Question proposed, That the Chairman do report the Bill, as amended, to the House.

Bill Rammell: Thank you, Miss Begg, for presiding over the Committee smoothly, efficiently and effectively. I congratulate all Committee members on the good-humoured nature of the discussion. A number of hon. Members commented on the fact that this might be a Finance Bill rather than an education Bill. I do not believe that that is the case. It is appropriate that education spokespersons lead this discussion. Important points of principle have been at stake that will bring real benefits to the Government. Through the mechanisms that we put in place, we can protect the graduate interest.

John Hayes: I endorse and amplify the thanks to you, Miss Begg. You have shown remarkable indulgence to Committee members, which has allowed us to debate these issues, even though our consideration has been concertinaed.
I have a couple of points to make, however. First, we learned a great deal this morning, but I wonder whether it would be better in the future—I make no criticism of today’s proceedings—to have a gap between the evidence-taking sessions and subsequent consideration of Bills. My second point is that we look forward to further consideration of the legislation and perhaps to tabling one or two amendments on Report, as we were encouraged to do by the Minister, when we can explore matters in even greater detail.
It is always a pleasure to serve in Committees opposite the Minister and with such an immensely sagacious group of colleagues. I thank all hon. Members.

Sarah Teather: I, too, thank you, Miss Begg, for the way in which you have chaired this Committee. I found it a very useful debate, particularly this morning’s session. I hope that this innovation in Public Bill Committees will be taken up by all Members.
I would like to add to the point made by the hon. Member for South Holland and The Deepings. It would be useful to have a gap between sessions, because this morning’s opportunity to question witnesses changed the way in which I thought about the Bill. It was a good example of the way in which Members on both sides can contribute and ask pertinent questions. The Committee was able to move forward considerably from the point at which we started this morning.

Anne Begg: I add my thanks to Committee members. This was the first Public Bill Committee that I have chaired. I thought that this morning’s session was extremely useful—I think that all Members did.

Question put and agreed to.

Bill, as amended, to be reported.

Committee rose at seven minutes to Six o’clock.